02/16/11 DOJ 1

AML & ReportingAML & Reporting

Three Ordinances, Two Duties,Three Ordinances, Two Duties,

And One Regulation And One Regulation

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IntroductionIntroduction

What is money laundering?What is money laundering? What is the significance?What is the significance? What are the reporting offences?What are the reporting offences? What are the protections?What are the protections? What about confidentiality?What about confidentiality? What about LPP?What about LPP?

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Sources of LawSources of LawMain OrdinancesMain Ordinances OthersOthers Drug Trafficking Drug Trafficking

(Recovery of Proceeds) (Recovery of Proceeds) Ordinance (Cap. 405) – Ordinance (Cap. 405) – since 1989 since 1989 [DTROP][DTROP]

Organized and Serious Organized and Serious Crimes Ordinance (Cap. Crimes Ordinance (Cap. 455) – since 1994 455) – since 1994 [OSCO][OSCO]

United Nations (Anti-United Nations (Anti-Terrorism Measures) Terrorism Measures) Ordinance (Cap. 575) – Ordinance (Cap. 575) – since 2002, some since 2002, some provisions not in forceprovisions not in force

High Court Rules, O. 115 - High Court Rules, O. 115 - 117 117

Drug Trafficking Drug Trafficking (Recovery of Proceeds) (Recovery of Proceeds) (Designated Countries and (Designated Countries and Territories) OrderTerritories) Order

(Cap. 405A)(Cap. 405A) Mutual Legal Assistance in Mutual Legal Assistance in

Criminal Matters Criminal Matters Ordinance (Cap. 525)Ordinance (Cap. 525)

Prevention of Bribery Prevention of Bribery Ordinance (Cap. 201)Ordinance (Cap. 201)

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SECTION 25 : OSCO –MONEY SECTION 25 : OSCO –MONEY LAUNDERINGLAUNDERING

““subject to section 25A, a person commits subject to section 25A, a person commits an offence if, an offence if, knowing or having knowing or having reasonable groundsreasonable grounds to believe that any to believe that any property in whole or in part directly or property in whole or in part directly or indirectly indirectly represents any person’s represents any person’s proceeds of an indictable offenceproceeds of an indictable offence, he deals , he deals with that property.”with that property.”

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Interpretation of Section 25Interpretation of Section 25

Actus ReusActus Reus

This is dealing in property, any propertyThis is dealing in property, any property

Not necessary to prove that the property was in fact Not necessary to prove that the property was in fact proceeds of an actual indictable offence – the status of proceeds of an actual indictable offence – the status of the property is only relevant to the the property is only relevant to the mens reamens rea (Oei Hengky Wiryo (2007) 10 HKCFAR 98)

A person can deal with property which represents A person can deal with property which represents proceeds of his own crimeproceeds of his own crime (Lok Kar Win (CFI), leave refused (CFA AC))

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Dealing with PropertyDealing with Property

conceal and disguise conceal and disguise property to make it property to make it look legitimatelook legitimate

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DealingDealing

Receiving or Receiving or acquiring propertyacquiring property

IF you keep it in the IF you keep it in the bath or a transfer bath or a transfer is received into a is received into a bank accountbank account

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DealingDealing

using property to using property to borrow money, or borrow money, or as security.as security.

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DealingDealing

bringing into or bringing into or removing the removing the property from property from Hong KongHong Kong

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Interpretation of Section 25Interpretation of Section 25 Mens ReaMens Rea KnowingKnowing:: subjective standardsubjective standard – – believing a state of affairs that is in fact truebelieving a state of affairs that is in fact true ((Lee Lee

Wai–yiuWai–yiu, CACC 100/2006, 7 Jun 2007), CACC 100/2006, 7 Jun 2007)

OROR Having Reasonable Grounds to BelieveHaving Reasonable Grounds to Believe: :

objective standard objective standard ““whether, objectively, reasonable grounds existed for the whether, objectively, reasonable grounds existed for the

belief and, if so, whether subjectively the defendant was belief and, if so, whether subjectively the defendant was aware of the existence of those reasonable groundsaware of the existence of those reasonable grounds””

: : Yam Ho-KeungYam Ho-Keung, CACC 555/2001, 24 Oct 2002, CACC 555/2001, 24 Oct 2002..

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Elements of the ML OffenceElements of the ML OffenceSection 25Section 25

Mens ReaMens Rea Not necessary for the prosecution to prove that D Not necessary for the prosecution to prove that D

actually believed that the property represented the actually believed that the property represented the proceeds of an indictable offenceproceeds of an indictable offence ((Ma ZhujiangMa Zhujiang, CACC , CACC 491/2005, 20 Aug 2007)491/2005, 20 Aug 2007)

Honest belief as to the innocent status of the property isHonest belief as to the innocent status of the property is NOTNOT a defence, if D was aware of the objective a defence, if D was aware of the objective grounds.grounds.

Not necessary to particularize or prove the precise Not necessary to particularize or prove the precise “indictable offence” in charging/proving that D had “indictable offence” in charging/proving that D had reasonable grounds to believereasonable grounds to believe ((Li ChingLi Ching, CACC , CACC 436/1997, 17 Dec 1997; 436/1997, 17 Dec 1997; Lam Hei KitLam Hei Kit, FAMC 27/2004, 27 , FAMC 27/2004, 27 Sept 2004;Sept 2004; Chen Zhen Chu Chen Zhen Chu, CACC 433/2006, 2 Nov , CACC 433/2006, 2 Nov 20072007))

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Reasonable GroundsReasonable GroundsSection 25Section 25

What would constitute reasonable grounds?What would constitute reasonable grounds? These are what “ a common sense right thinking member of the These are what “ a common sense right thinking member of the

community would consider sufficient to lead a person to hold” the community would consider sufficient to lead a person to hold” the belief that the property represents partly or wholly, directly or belief that the property represents partly or wholly, directly or indirectly the proceeds of serious crime.indirectly the proceeds of serious crime.

Alternative scenarioAlternative scenario:: If the reasonable grounds exist for the above it is not a defence to If the reasonable grounds exist for the above it is not a defence to

state that other reasonable grounds exist for an alternative state that other reasonable grounds exist for an alternative scenario.scenario.

((HKSAR v Wan Yet Kwai HKSAR v Wan Yet Kwai CACC 372/2008, 5 May 2009)CACC 372/2008, 5 May 2009)

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Reasonable GroundsReasonable GroundsAlternative ScenariosAlternative Scenarios Section 25 Section 25

Reasonable Grounds are Reasonable Grounds are NOTNOT that a that a person would be sureperson would be sure

There may be room in them for inference, There may be room in them for inference, even conjecture even conjecture

Therefore there Therefore there can be plausible can be plausible alternative scenarios to the adverse onealternative scenarios to the adverse one, , yet reasonable grounds exist, so convictyet reasonable grounds exist, so convict

((HKSAR v Wan Yet Kwai HKSAR v Wan Yet Kwai CACC 372/2008, 5 May 2009 per CACC 372/2008, 5 May 2009 per

Hartmann JAHartmann JA))

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Elements of the ML OffenceElements of the ML OffenceSection 25Section 25

Mens ReaChoi Sui Hey, CACC 277/2007, 31 Oct 2008

“If a person either allows another to use his bank account for the transmission of funds or accepts substantial funds from others which he then remits, without enquiry by him or explanation by the others, to third parties unknown to him then, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank account has reasonable grounds to believe that the funds passing through the account or the funds with which he has dealt represent proceeds of an indictable offence.”(para 20)

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Approaches toApproaches toMoney LaunderingMoney Laundering

Self Laundering Self Laundering

Laundering for othersLaundering for others

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Make sure crime does not payMake sure crime does not pay

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How to make crime not payHow to make crime not pay

DenyDeny the criminal the the criminal the fruits of crime, big fruits of crime, big house, fancy carhouse, fancy car

Deny Deny him the ability him the ability to support his family to support his family luxuriouslyluxuriously

DenyDeny him the assets him the assets to invest in more to invest in more crimecrime

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Reporting of Suspicious PropertyReporting of Suspicious Property

Compulsory ReportingCompulsory Reporting Scope : EveryoneScope : Everyone Structure of OffenceStructure of Offence PunishmentPunishment Legal Professional Privilege & Legal Professional Privilege &

ConfidentialityConfidentiality

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Disclosure of knowledge or Disclosure of knowledge or suspicionsuspicion

Section 25A(1) OSCO- the reporting Section 25A(1) OSCO- the reporting offence – summary offenceoffence – summary offence

Failing to report to an authorised officerFailing to report to an authorised officer Knowledge or suspicion that any property Knowledge or suspicion that any property

is or is connected to the proceeds of an is or is connected to the proceeds of an indictable offenceindictable offence

Within a reasonable timeWithin a reasonable time

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Relevant Property s.25A(1)Relevant Property s.25A(1)

in whole or in part directly or indirectly in whole or in part directly or indirectly represents any person’s proceeds of an represents any person’s proceeds of an indictable offenceindictable offence

was used in connection with; orwas used in connection with; or

is intended to be used in connection with,is intended to be used in connection with, an indictable offence.an indictable offence.

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Mens ReaMens Rea

Only SubjectiveOnly Subjective actual knowledge or suspicion concerning the actual knowledge or suspicion concerning the

nature of the propertynature of the property no objective qualifier, such as “reasonable” for no objective qualifier, such as “reasonable” for

the alternative mental state of “suspicion”the alternative mental state of “suspicion” Suspicion: “Suspicion: “there is a possibility, which is more there is a possibility, which is more

than fanciful, that the relevant facts existthan fanciful, that the relevant facts exist “ - and “ - and the suspicion is in some cases settledthe suspicion is in some cases settled K Ltd v K Ltd v Natwest Bank (2006) EWCA Civ 1039, [2007] 1 WLR 311Natwest Bank (2006) EWCA Civ 1039, [2007] 1 WLR 311

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Threshold of SuspicionThreshold of Suspicion

Suspecting property has the quality Suspecting property has the quality defined in s.25A(1) falls a long way short defined in s.25A(1) falls a long way short of having demonstrable proof that the of having demonstrable proof that the property is of that qualityproperty is of that quality

What matters is what the defendant What matters is what the defendant thought, not what the reasonable person thought, not what the reasonable person would have thought in the particular would have thought in the particular circumstancescircumstances

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Actus ReusActus Reus

Failing to report in a reasonable timeFailing to report in a reasonable time

What is reasonable?What is reasonable?

Depends on circumstancesDepends on circumstances

May allow for consultations or obtaining May allow for consultations or obtaining legal advice -legal advice - Regulations Regulations

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Reporting to whomReporting to whom

Authorised officer- police and customsAuthorised officer- police and customs

Joint Financial Intelligence Unit (JFIU)Joint Financial Intelligence Unit (JFIU)

STREAMSSTREAMS

RegulationsRegulations

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Confidentiality and LPPConfidentiality and LPP

Disclosure in OSCO and DTROP subject to LPP: Disclosure in OSCO and DTROP subject to LPP: OSCO s.2(18)OSCO s.2(18)

Declaration of LPP: OSCO s.2(1) Declaration of LPP: OSCO s.2(1) (Prudential v Special Commissioner of Income Tax and (Prudential v Special Commissioner of Income Tax and

Philip Pandolfo (HM Inspector of Taxes)Philip Pandolfo (HM Inspector of Taxes) [2009] EWHC [2009] EWHC 2494): 2494): Extension of LPP to tax advisers (on appeal)Extension of LPP to tax advisers (on appeal)

Advice Privilege Advice Privilege

Litigation PrivilegeLitigation Privilege

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LPPLPP

Important public and private interestImportant public and private interest Advice privilegeAdvice privilege Negative Examples:Negative Examples: Not conveyancing documentsNot conveyancing documents Not client account ledger of client’s moneyNot client account ledger of client’s money Not correspondence with other lawyers Not correspondence with other lawyers

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Advice privilegeAdvice privilege

What is it?What is it? Communications directly seeking or Communications directly seeking or

providing adviceproviding advice Information passed so that advice may be Information passed so that advice may be

given given Includes advice on what can be done in a Includes advice on what can be done in a

relevant legal contextrelevant legal context

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Litigation privilegeLitigation privilege

Confidential communications in course of Confidential communications in course of litigation or reasonably in prospect of litigation or reasonably in prospect of same betweensame between

Lawyer and clientLawyer and client Lawyer and agentLawyer and agent Lawyer and third partyLawyer and third party

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Litigation PrivilegeLitigation Privilege

Sole or dominant purpose:Sole or dominant purpose: Seeking or giving advice in Seeking or giving advice in

relation to litigationrelation to litigation Obtaining evidence to be Obtaining evidence to be

used in itused in it Obtaining information Obtaining information

leading to obtaining such leading to obtaining such evidenceevidence

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Crime exception for LPPCrime exception for LPP

No LPP for documents forming part of a No LPP for documents forming part of a criminal actcriminal act

LPP is not displaced until there is prima LPP is not displaced until there is prima facie evidence of a fraud or other crimefacie evidence of a fraud or other crime

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Elements of the Reporting OffenceElements of the Reporting OffenceSection 25A Section 25A

25A. Disclosure of knowledge or suspicion that 25A. Disclosure of knowledge or suspicion that property represents proceeds, etc. of indictable property represents proceeds, etc. of indictable offenceoffence(1) Where a person (1) Where a person knows or suspects knows or suspects that that any any property- property-

(a) in whole or in part directly or indirectly represents (a) in whole or in part directly or indirectly represents any person's proceeds of;any person's proceeds of;(b) was used in connection with; or(b) was used in connection with; or(c) is intended to be used in connection with,(c) is intended to be used in connection with,

an indictable offencean indictable offence, he shall , he shall as soonas soon as it is reasonable as it is reasonable for him to do sofor him to do so disclosedisclose that knowledge or suspicion that knowledge or suspicion, , together with any matter on which that knowledge or together with any matter on which that knowledge or suspicion is basedsuspicion is based, , to an authorized officerto an authorized officer..

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Elements of the Reporting OffenceElements of the Reporting OffenceSection 25ASection 25A

Summary OffenceSummary Offence – max. punishment: – max. punishment: $50,000 fine and/or 3 months jail$50,000 fine and/or 3 months jail

Disclosures go to the Joint Financial Intelligence Disclosures go to the Joint Financial Intelligence Unit (JFIU). E-reporting using STREAMS for Unit (JFIU). E-reporting using STREAMS for registered users.registered users.

Immunity from civil liability (s. 25A(3))Immunity from civil liability (s. 25A(3))

‘‘Tipping Off’ and Publication Offences (ss. 25A(5), Tipping Off’ and Publication Offences (ss. 25A(5), 26)26)

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Elements of the Reporting OffenceElements of the Reporting OffenceSection 25ASection 25A

JFIU and other public /professional bodies have JFIU and other public /professional bodies have guidelines on how to identify suspicious transactionsguidelines on how to identify suspicious transactions

Not much caselaw on this offence.Not much caselaw on this offence.

Robert PangRobert Pang (2002 CFI) (2002 CFI) application to barristers – information protected by application to barristers – information protected by legal professional privilege not required to be disclosed legal professional privilege not required to be disclosed (now s. 2(18))(now s. 2(18)) arrest was declared unlawful arrest was declared unlawful

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ProtectionsProtections

AML offence: s.25 (1) OSCOAML offence: s.25 (1) OSCO

Disclosure protection and offence: s.25A(2) Disclosure protection and offence: s.25A(2)

Protection against suit: s.25 (3)Protection against suit: s.25 (3)

Offence to disclose the disclosure: s.25 (5) Offence to disclose the disclosure: s.25 (5) tipping off “any matter likely to prejudice an tipping off “any matter likely to prejudice an investigation”investigation”

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Section 25A(2) OSCOSection 25A(2) OSCO

Disclosure of property suspicion under Disclosure of property suspicion under s. 25A(1) s. 25A(1) Does an act in contravention of s. 25(1)Does an act in contravention of s. 25(1) Disclosure relates to that act Disclosure relates to that act Gain protection if disclose prior to the act Gain protection if disclose prior to the act

and does act with consent of authorised and does act with consent of authorised officerofficer

Protection if disclosure after the act but Protection if disclosure after the act but reasonably soon and on own initiativereasonably soon and on own initiative

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S. 25A(2) OSCO - ProtectionS. 25A(2) OSCO - Protection

What protection?What protection?

Does not commit an offence under s.25(1) Does not commit an offence under s.25(1) - money laundering- money laundering

Disclosure must be of every discrete act in Disclosure must be of every discrete act in relation to the property subject to the relation to the property subject to the original disclosureoriginal disclosure

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Protecting yourself & employerProtecting yourself & employer

Disclosure protectsDisclosure protects At your own risk if do not discloseAt your own risk if do not disclose Client reality : need fees, need referralsClient reality : need fees, need referrals Practical reality: busy, mind set, Practical reality: busy, mind set, Legal reality: what is knowledge or Legal reality: what is knowledge or

suspicionsuspicion

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ConclusionsConclusions

Difficult areaDifficult area

Develop awarenessDevelop awareness

Be mentally prepared to discloseBe mentally prepared to disclose

For your own protection and employer’s; andFor your own protection and employer’s; and for the wider public interest.for the wider public interest.

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Conclusions (Cont’d)Conclusions (Cont’d)

Three Ordinances-Three Ordinances-

DTROPO, OSCO & UNATMODTROPO, OSCO & UNATMO Duty to report suspicion about property Duty to report suspicion about property

s.25A(2) OSCOs.25A(2) OSCO Duty to be aware of the elements of Duty to be aware of the elements of

s.25(1) OSCO - money launderings.25(1) OSCO - money laundering Regulations and any guidance attached Regulations and any guidance attached

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Thank YouThank You

Welcome questionsWelcome questions Welcome exchange of Welcome exchange of

views and views and experiencesexperiences